Income Tax on Individual

Income tax returns (ITRs) are a crucial part of every taxpayer’s responsibility in the Philippines. As the country’s primary source of revenue, income tax plays a vital role in funding public services and government initiatives. This blog aims to provide individuals with a comprehensive understanding of income tax in the Philippines, including who needs to file a return, when to file, the process involved, and important considerations.

What is income tax?

Income tax is a type of tax levied by the government on the income earned by individuals, businesses, and other entities within its jurisdiction. It is one of the primary sources of revenue for governments and is used to fund public services, infrastructure projects, and various government initiatives.

How are individuals taxed?

1. For resident citizens, non-resident citizens, resident aliens, and non-resident aliens engaged in trade or business in the Philippines – they are subject to graduated rates of 0-35% of their taxable income.

Not over P250,000	0%
Over P250,000 but not over P400,000	15% of the excess over P250,000
Over P400,000 but not over P800,000	P22,500 + 20% of the excess over P400,000
Over P800,000 but not over P2,000,000	P102,500 + 25% of the excess over P800,000
Over P2,000,000 but not over P8,000,000	P402,500 + 30% of the excess over P2,000,000
Over P8,000,000	P2,202,500 + 35% of the excess over P8,000,000[1]

• For non-resident aliens NOT engaged in trade or business in the Philippines – they are subject to final tax rate of 25% of their gross income.[2]

How is the income of self-employed and/or professionals taxed?

For Purely Self-employed and/or Professionals whose gross sales/receipts and other non-operating income do not exceed the VAT threshold of Php3,000,00.00, the tax shall be, at the taxpayer’s option, either:

1. 8% income tax on gross sales or gross receipts in excess of Php250,000.00 in lieu of the graduated income tax rates and the percentage tax; OR
2. Income tax based on the graduated income tax rates for individuals. [3]

Note: Unless the taxpayer signifies his intention to elect the 8% Income Tax Rate in the 1^st Quarter Percentage and/or ITR, or on the initial quarter return of the taxable year after the commencement of a new business/practice or profession, the taxpayer shall be considered as having availed of the graduated rates. Such election shall be irrevocable, and no amendment of option shall be made for the said taxable year. [4]

How is the income of mixed income earners taxed?

For mixed income earners (earning both compensation income and income from business or practice of profession), their income taxes shall be:

1. For income from compensation – Graduated income tax rates for individuals; AND
2. For income from business or practice of profession:
   1. Gross sales/receipts which do NOT exceed the VAT threshold of Php3,000,000.00 – 8% income tax on gross sales/receipts and other non-operating income OR graduated income tax rates on taxable income, at the taxpayer’s option.
   1. Gross sales/receipt and other non-operating income which exceeds the VAT threshold of Php3,000,000.00 – graduated income tax rates for individuals.[5]

Note: The provision under Section (24)(A)(2)(b) of NIRC, which allows an option of 8% Income Tax rate on gross sales/receipts and other non-operating income in excess of Php250,000.00 is available only to purely self-employed individuals and/or professionals. The Php250,000.00 is not applicable to mixed income earners since it is already incorporated in the first tier of the gradated income tax rates applicable to compensation income. [6]

Who are individual taxpayers exempt from income tax?

The following are exempt from income tax:

1. Minimum wage earners[7]; and
2. Those exempted under international agreements.

Are senior citizens subject to income tax?

Yes, whether the income is derived from compensation or otherwise, except if the senior citizen is a minimum wage earner under R.A. No. 9504

Who is a senior citizen?

A senior citizen refers to any resident citizen of the Philippines at least 60 years old[8].

What BIR Form to use for individual income tax preparation?

1. For reporting earnings solely from compensation, non-business income or professional income- BIR Form 1700
2. For reporting income from your business or profession. This also applies if you avail of the 8% fixed income tax rate – BIR Form 1701A
3. For reporting earnings as self-employed- BIR Form 1701
4. For reporting quarterly income – BIR Form 1701Q

How to file income tax returns?

By filing in person, or through online filing (eBIRForms or eFPS).

How to file income tax returns through manual filing?

1. Fill-up three copies of BIR Form 1700, Form 1701, and 1701 as mentioned above.
2. If there is payment needed, proceed to the nearest Authorized Agent Bank (AAB) of the Revenue District Office where you are registered.
3. Present the duly accomplished BIR Form together with the required attachments and your payment and receive your copy of the duly stamped and validated form from the tax filing center representative.

3. If there is no payment, including refundable or creditable returns, returns with excess tax credit carry over, and returns qualified for the second installment, proceed to the Revenue District Office where you are registered or to any established Tax Filing Centers established by the BIR.
4. Present the duly accomplished BIR Form, together with the required attachments, and receive your copy of the duly stamped and validated form from the RDO/Tax Filing Center representative. 

Who are required to use the Electronic BIR Forms (eBIRForms)

1. Top Withholding Agents
2. Accredited Tax Agents/ Practitioners and all its client-taxpayers
3. Accredited Printers of Principal and Supplemental Receipts/Invoices
4. One-Time Transaction (ONETT) taxpayers who are classified as real estate dealers/ developers; those who are considered as habitually engaged in the sale of real property who are using/filing BIR Form No. 1606, together with the BIR Form No. 2000-OT and regular taxpayers already covered by eBlRForms
5. Those who shall file a “No Payment Return”
6. Government-Owned-or-Controlled Corporations (GOCCs)
7. Local Government Units (LGUs), except barangays
8. Cooperatives registered with National Electrification Administration (NEA) and Local Water Utilities Administration (LWUA)

Who are required to use the Electronic Filing and Payment System (eFPS)?

1. Taxpayer under Taxpayer Account Management Program (TAMP)
2. Accredited Importer and Prospective Importer
3. National Government Agencies (NGAs)
4. All Licensed Local Contractors
5. Enterprises enjoying Fiscal Incentives (PEZA, BOI, Various Zone Authorities, etc.)
6. Top 5,000 Individual Taxpayers
7. Corporations with Paid-Up Capital Stock of Php10 Million and above Corporations with Complete Computerized Accounting System (CAS)
8. Government Offices, in so far as remittance of withheld VAT and business tax is concerned
9. Government Bidders
10. Insurance Companies and Stockbrokers
11. Large Taxpayers
12. Top 20,000 Private Corporations

What are the steps in filing income tax returns through eBIRForms ?

STEP 1: Download and install offline eBIRForms Package version 7.9.4. from www.bir.gov.ph.

STEP 2: Once you have downloaded the eBIRforms application, open it and complete the required Profile Fields. Next, select the appropriate BIR Form from the drop-down menu and click on “Fill-up” to proceed.

STEP 3: Encode and accomplish the ITR form.

STEP 4: When finished typing in the necessary details, click the VALIDATE button to allow system to check all the fields.

If the user wants to edit, click the “Edit” button. When finished editing, click the “Validate” button again to allow system to check changes in all the fields. The system will show message stating successful validation:

STEP 5: Click the “Save” button to save changes.

STEP 6: Once done, click the “Submit” button to allow system to forward to BIR the completed Tax Return Form.

STEP 7: After clicking the “Submit” button, choose eBIRForms to submit the completed Tax Return form.

STEP 8: A system will display a message which you must respond by clicking “OK”.

STEP 9: Then, click the “OK” button to proceed.

STEP 10: Pay any dues via ePay – Bureau of Internal Revenue (bir.gov.ph), or you may follow this link for more instructions: RMC No. 4-2021 Annex A.pdf (bir.gov.ph)

How to file income tax returns online via eFPS?

STEP 1: Go to eFPS Home – eFiling and Payment System (bir.gov.ph) and click “Enroll to eFPS”.

STEP 2: Provide the required information in the designated fields. Select your reason for eFiling from the drop-down menu. If you are a volunteering taxpayer, make sure to choose the appropriate option.

STEP 3: After enrolling, simply access the BIR eFPS website and fill out the tax returns with the required detail, then validate and submit.

STEP 4: A Filing Reference Number page is generated and shown after successfully filing and submitting the tax return.

STEP 5: IF you are due for a tax payment, you will be provided with the form with the payment information displayed. Simply choose the mode of payment and the authorized bank, and received the proof of successful tax payment.

When is Your Income Tax Due?

The deadline for submitting your income tax return is every April 15. Late filing counts as a penalty, requiring you to pay a fine of an additional 25% of the balance owed and a 20% interest charged yearly from the payment’s due date.

It is essential to file your income tax return before the deadline set by the BIR, which is on or before April 15 of each year for individual taxpayers. Always keep a copy of your filed tax return and other supporting documents for future reference and auditing purposes.

---

[1] Sec. 24(A)(2)(a), National Internal Revenue Code (NIRC), as amended.

[2] Secs. 24 and 25, NIRC.

[3] Sec. 24(A), NIRC.

[4] Section 3(C), R.R. No. 8-2018.

[5] Sec. 24(A), NIRC.

[6] Section 3(D), R.R. No. 8-2018.

[7] Sec. 24 (A)(2), as amended by R.A. No. 9504

[8] R.A. No. 9994.